LISTEN: Private vs Public Blockchain: Why Enterprises Need Both

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In its genesis, blockchain was designed with the intention of it being a decentralized peer-to-peer network. However, these networks can either require permission by a controlling entity (a private blockchain) or be truly permissionless and everyone can make modifications (a public blockchain). But when it comes to enterprises and businesses, which one is better? On one hand, a private blockchain is more flexible as the controlling parties are able to mold and amend the network’s rules to ensure optimal workflows. On the other hand, a public blockchain has a higher degree of integrity — multiple parties independently vetting for one piece of information is more reliable than one source dictating what that piece of information means.

Tomaz Levak, Co-Founder of OriginTrail, thinks that enterprises need a bit of both for one simple reason: interoperability.

According to Levak, enterprises are more often than not in a complex situation, which is neither black nor white. Hence, these situations require a flexible, technological approach. A solely public or private blockchain is unable to cater towards the grey range in which businesses operate in, so a mix of both is needed for the enterprises to adjust their processes or output. On top of that, businesses today sit on legacy systems, which also requires a certain degree of interoperability when it comes to blockchain integration.

In describing the benefits of using a hybrid approach, Levak uses the example of proving that a batch of products is truly organic. By opening up the supply chain to transparency via the use of blockchain, participants in the network can independently cross-confirm details of the transaction and claim that to the best of their knowledge, the product that they are dealing with is truly organic. That would be the public aspect. The private blockchain will then be used to conceal confidential information, such as pricing.

At the end of the day, the exact mix of private and public blockchain is up to each business as there is no one right answer. In the process of finding the optimum mix, though, Levak encourages businesses to dip their toes into blockchain before truly deciding on whether or not to adopt (or not to adopt) the network for the betterment of their operations.

Key Highlights

“Anything in the enterprise or the business world is very rarely black and white. So we’re always facing kind of a complex situation. And complex situation also requires a flexible, technological approach.”

“What decentralization and blockchain-based systems or decentralized ledger technologies are promising here is really the ability to connect these different legacy systems together, rather than replace them and create new value out of it.”

“Solve your business needs. […] You need to have two things working together and they don’t necessarily have to clash.”

“It’s sometimes perceived that you starting a blockchain-based or the decentralized ledger technology project is just such an enormous cost. It doesn’t have to be like that if you’re really approaching it with sensible tactics. So they’re similar to any other project and in an enterprise environment, you are able to test quickly, you’re able to test with a with tools that allow you to iterate quickly.”

Full Transcript

Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into the topics we cover right here on Forkast.News. I’m Editor-in-Chief Angie Lau and today we dive into the issue of public or private blockchain. Now public blockchain is truly decentralized and permissionless, meaning anyone can join it. Private blockchain is the use of blockchain technology that requires permission. So think about it this way: access is controlled by the business, who decides those allowed to access the network and those who are not. But it really is a philosophical debate that is ever increasing. Should enterprise or business control the technology? Or should it be a tool for everyone in a truly decentralized manner? Or is there another way, a hybrid solution perhaps. Well Tomaz Levak, Co-Founder of OriginTrail seems to think so. And in fact, his recent piece on Forkast.News is one to dive into a little deeper today. Recognizing that when it comes to blockchain for business, as an enterprise solution, there needs to be a flexible, public and private interwoven blockchain. Tomaz, welcome.

Tomaz Levak: Yeah, correct. Anything in the enterprise or the business world is very rarely black and white. So we’re always facing kind of a complex situation. And complex situation also requires a flexible, technological approach. So that way, our kind of experience shows throughout the last year is really that when you’re trying to solve a supply chain challenge for enterprise, it’s rarely a solely private or permission, or solely public or permissionless solution that’s going to be required. It’s not even that. You need also the legacy systems. And when you think about all these different ecosystems, of course, interoperability is a key point.

Angie Lau: Yeah. It’s a key point. Because if you think about it, for most people, the experience is anything but interoperability in that… think of your mobile phone, there are iPhone users, and then there are Android users. And these systems don’t necessarily always talk to each other. In fact, they’re very siloed. And that’s the frustration, right? Like, how do you migrate from one to another comfortably? But that’s really kind of what we’re talking about here when we talk about interoperability.

Tomaz Levak: Yeah. Making the experience that maybe the consumers have with the example that you put forward between iOS and Android is very similar to what you would encounter in an enterprise scenario as well. So there’s a lot of walled gardens, a lot of current legacy systems, which holds a lot of value in terms of — they are able to collect a lot of data. But these data remains locked in different silos, all spread out and fragmented amongst different entities. So what decentralization and blockchain-based systems or decentralized ledger technologies are promising here is really the ability to connect these different legacy systems together, rather than replace them and create new value out of it.

Angie Lau: Let’s talk about it from the perspective of businesses. What are the pros and cons of a private blockchain? And where are scenarios in which a public blockchain could also be beneficial? Let’s talk about it from that perspective first. Pros and cons of both.

Tomaz Levak: I think it’s an important point that you put forth, is understanding what is good about a certain technology versus another one. So when we were thinking about private or permission, the obvious pros that you’re going to get here is that it is more flexible, because the consortium itself can define a lot of the rules and amend a lot of the rules very quickly, or even one leader of the consortia so, yes. So you will have the speed and the cost benefits of having a permission system. On the other hand, the obvious downside is that the level of integrity is nowhere near a public permissionless system. So if we have a, let’s say, a trade-off between the speed and the flexibility of how something is set up, versus the integrity levels that a permissionless system would get on the other side.

Angie Lau: Define integrity. What do you mean by integrity?

Tomaz Levak: It’s about a notion of trust. How are we trusting something? How do we decide what is trustworthy, and how is this technology impacting the way we perceive what is trustworthy? So if we look at consortia permission, why does this have lower integrity? It’s because it’s more easily controlled and it’s not as tamper-proof as a permissionless system is just because of the mere fact that there is much less of a number of parties that need to collude. Or sometimes it’s even one that can actually alter either the rules or they can alter even what’s been written in a certain measure. So that’s why having that mere exposure to that possibility makes that type of a system have integrity within that consortia, but outside, less so. Especially when compared to a public network, which is permissionless where there is no single entity or no single group of let’s say, entities that could achieve that the same thing.

Angie Lau: Got it. So it’s really that concept of if it’s a centralized, you know, that central controlling entity is really— That’s where the security, vulnerability comes from, versus if it’s decentralized, and it’s shared by many, that security issue is diminished. Is that what you’re talking about?

Tomaz Levak: When it comes to security issues, of course, there’s also another angle where a lot of times the enterprise, just by the mere fact that something is not entirely public, it’s perceived as more secure. While it’s not necessarily like that. Of course, because it still depends on how a particular system obviously is protected by what type of encryption and others protect the security measures. But it’s not more secure, by definition. A public, open-source and more tested ecosystem might be even more secure in that way. But just because, let’s say the data is then replicated throughout the entire network of a public network where it is permissionless that lets enterprise know exactly who is the one that is holding the data, that might create a certain element of fear when it comes to using public networks, especially for certain types of data.

Angie Lau: So how are things changing, then when it comes to attitudes of open data exchange. Is going to have to be the corporate new normal? And how do you explain to those traditional companies, those traditional corporates who are really sitting behind those garden walls, that open data exchange might be the new normal?

Tomaz Levak: Yeah, I think it’s all about value. So we are moving towards the point where tangible value gets created and as that will increase, so will the rationale of why someone would be using a more open network. So I feel that we’re going to have questions about why open and decentralized approach for as long as… until this question will be replaced by the question, “Why not?”. And it’s just a matter of that, for so long, we companies and enterprises, were focusing more on organizational optimums. And if they were maybe vertically integrated on that… vertically integrated the optimum, whilst there is more value, being able to be captured if we are looking at from a network optimum. And if you want to achieve a network optimum, where you have actors, which are not directly connected, or even, let’s say connected through to a shareholder or something like that, then you’re gonna need a more decentralized approach to optimize such things. Be the next winners.

Angie Lau: But here’s the problem, right? Let’s say you’re the CEO, you’ve already got billions of dollars of R&D and investment in tech that has progressed industries in the past decade. How do you then open the doors to that R&D and share amidst the competition? And is that a good thing? Number one. And how does technology enhance the desire to do that, or maybe discourage? If this is the right way to go, how to change those attitudes that are in place right now in legacy companies?

Tomaz Levak: That’s quite a challenge. But you think baby steps. So you start to find one challenge that has a clear pain point, and you start working on that. And then as you show value, the more doors will open, because of a greater understanding of how this technology will get created. So you have this organizational learning. And it really is about starting small but starting relevant. So you’ll start connecting different systems amongst each other and as you do so, the companies will see that more value gets unlocked. So instead of just relying on their own… Of course, you have to give some things up, but also you will receive much more back. So you’re looking for those types of win-win situations where integrity plays a big role, where interconnectivity plays a big role, and when you are able to provide the required levels of security. So that’s basically how we approach it.

Angie Lau: Give me a real-life example of how this is being applied right now. As you take a look at supply chains, and as you take a look at just how different actors in specific industries are engaging with each other and via blockchain. And how is interoperability, this hybrid solution of public and private blockchain, enhancing those industries? Give me an example?

Tomaz Levak: I mean, we can take just about any supply chain. Let’s take food, for example. And so the initial thing where, and the one that it’s kind of the most known, and is the easiest to see because it’s also visible to the consumers. It’s the supply chain visibility aspect. So what you’re able to do is show the provenance of a certain product or the ingredients of a certain product all the way back to their origin. But instead of that being a single company claim, having a decentralized system, what you were able to do is create the cross-referenced consensus between all the actors that were involved in a certain supply chain. And then as a consumer at the end of the supply chain checks, they know that they have the veracity of the data they’re looking in because those claims were cross-confirmed between each of the transactions that were made between the different businesses. But that’s just the, let’s say, the very basic level of what you can achieve. What we like to say is then we open up the economies of scope, because you have the very same data sets can [which] be enriched by additional parameters. And then open up even more possibilities new use cases. Things like compliance, things like product safety, things like certifications.

Tomaz Levak: So moving from, let’s say that you want to ensure that you’re with a product that you’re eating are actually organic. Currently, your organic certificate is going to be checked by a certain auditing body, let’s say, once a year. But what if you could transition from that to having a relevant data with integrity, so you’ll know that someone is accountable for what they’re responsible for, and you’ll be able to verify the key quality. And if in case of organic, let’s say— Let’s decide the values of a particular product for every single batch of products. And in that case, you can be the consumer or you can be the government agency, or you can be the retailer who wants to make sure that this comes in. So as we start to connect these different data points together, a lot of value starts to get created. But in order to motivate such behavior, it will start to share more. The decentralized network is much more performant. Because as soon as we will have one central authority, what we were discussing before, the motivation to share starts falling.

Tomaz Levak: But if everyone keeps the ownership of their data, and has the flexible way to share, let’s say pricing information, obviously is not something they want to include towards the public. It might be necessary for them to optimize certain processes between their partners, let’s say documentation flow. So this type of sensitive information, you would only share within a private setting only between the consortium of relevant partners. Whereas things like product quality, product safety certifications, these need to have the utmost integrity. So for this, there’s absolutely no other option, but to use as, let’s say, a public network that can provide the biggest levels of integrity because a consumer at the end of the supply chain, they don’t care about the conservative setup of a certain database. They need to have something, that claim has been really written in a tamper-proof way, and it couldn’t have been altered with and they know that there are several companies that claim the same thing, rather than being able to be included and meddled with.

Angie Lau: So it goes back to the first question I asked, which seems almost a little too basic, as the way that this is an industry that is quickly evolving. You know, the pros and cons of public blockchain, the pros and cons of private, because it sounds like you can get the best practices, the best parts and the benefits of both and create a hybrid engagement, a hybrid platform that allows you to be flexible and choose what you need, specifically, as a company.

Tomaz Levak: Yes, solve your business needs. So that’s exactly the point. What we’re arguing is you need to have two things working together and they don’t necessarily have to clash. As a matter of fact, because we are focusing more on the data side, our data structures are the same whether you share something between the consortium or if you share something in a public setting.

Angie Lau: A lot of corporates and executives are trying to prepare themselves today by listening to this podcast and really trying to understand how the future is going to emerge and really apply blockchain thinking into their business thinking, For those who are listening and accept the need to engage, what is the best in class, best practices, best thinking when it comes to thinking about blockchain application in their own industries?

Tomaz Levak: Yeah, it’s a lot of engagements are still, at least from our perspective, difficult to grasp, as to why someone has worked a certain way. So because of that, the first step should always be about educating and understanding what you’re trying to achieve. And as you understand what you’re trying to achieve, then the technology can support your business needs. Or maybe it doesn’t, either way, it’s ok. But the way we like to start off is really by ensuring that the use case that we are following has been well understood by the enterprise center teams. And they are behind it, and then start off with the feasibility studies. So I would not jump in super large projects because that just increases their risk very much. And it doesn’t have to be that. So it’s sometimes perceived that you starting a blockchain-based or the decentralized ledger technology project is just such an enormous cost. It doesn’t have to be like that if you’re really approaching it with sensible tactics. So they’re similar to any other project and in an enterprise environment, you are able to test quickly, you’re able to test with a with tools that allow you to iterate quickly. And it’s something that we always try to do before going towards more larger production applications.

Angie Lau: Pick one pain point, address it, be specific about it, and then grow it if the benefits are truly there.

Tomaz Levak: Yes. Pick three pain points if you want. But don’t start small with all of them. It doesn’t have to be one, but like start smaller. And then as you see which one really grows in value that you are expecting them, have that one be explored further.

Angie Lau: You know what it is Tomaz, it’s kind of like learning how to swim. You just kind of want to dip your toes in the water and that’s okay. Before you do the full belly dive into the lake.

Tomaz Levak: I agree. But then again, also the jump metaphor is that you can’t learn how to swim by watching others. So it is important to start dipping your toe in and you do need to get yourself in the water if you want to learn to swim eventually.

Angie Lau: Thank you Tomaz for teaching us a little bit how to swim here, at least, to start thinking about how to swim in this emerging technology space called blockchain. Thank you Tomaz and thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Editor-in-Chief Angie Lau. Until the next time.

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